A strange thing is happening in the Japanese business world. Even as small- and medium-sized enterprises (SMEs) are under increasing pressure from a shrinking economy to downsize and to globalize, or otherwise go under, in actual fact the number of bankruptcies is now at a 19-year low. Indeed, over the last 3 months, the trend of fewer bankruptcies is gathering momentum and under normal circumstances one might might be forgiven for thinking that the economy is recovering.
For example, for the month of September, 931 companies with debts of JPY10m or more went under, according to Tokyo Shoko Research. In August the number was 957, the lowest number for an August since 1992. So at this rate, about 12,000 companies will go out of business with total debts of JPY1.8trn. To help you with your math, that is an average of JPY1.5bn per company — although the reality is that most of the losses would have been incurred by the top 5% of failures.
So what gives? Well, we don’t think the numbers are anything to be sanguine about. Rather, our take is that the banks are putting through the last round of payment
deferment agreements before closing off the spigot next year and sending the bad loans on to the government. Come next April, the numbers of companies going under will start to rise again, beginning with those who don’t just need deferred loan repayments but need fresh debt as well.
You’ll recall that in 2009, the then banking and postal services minister, Shizuka Kamei, ram-rodded through legislation that provided a bank loan repayments moratorium to SMEs for 3 years. Then in 2011, the moratorium was extended until March 2013. At this stage there doesn’t seem to be an intention to further extend it.
No one seems to have up-to-date numbers on how many companies have successfully applied for these loan repayment deferments, but the original budget limit was JPY30trn (US$340 billion) and 2009 news reports say that the government had burned through 50% of that in the first month. Since then, we have seen various blogged numbers of up to 500,000 firms applying for deferments, 90% of which
were approved, and if those number are right, then probably the government budget has already been exceeded. On the current numbers, though, each of those 450,000 ailing companies has JPY30m in unpaid loans that will go into default next March.
*** Extracted from Terrie’s Take on www.japaninc.com.